China steel firm Kingtec facing bankruptcy amid debt pressures

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SHANGHAI (Reuters) - Kingtec Steel Corporation, based in China’s far northwestern region of Xinjiang, is preparing to apply for bankruptcy as a result of spiraling debt, the company said in a statement on Friday.

Kingtec said it would be unable to pay all of its debts, including a 550 million yuan ($86.26 million) bond issued in 2013.

It blamed its problems on the poor steel business environment in Xinjiang as well as a “gradual deterioration” in its own operating conditions. It has ceased production.

Three-quarters of China’s steel enterprises were struggling with heavy losses in 2015-2016 as a result of a price-sapping capacity glut and a slowdown in demand growth. Mills in Xinjiang suffered more than most, with its remote location leading to higher raw material and transportation costs.

The sector has now become profitable again thanks to rising prices and a statewide effort to shut down inefficient and polluting plants, but historical debt has continued to plague some firms.

State-owned Chongqing Iron and Steel Group was forced to undergo a debt-to-equity swap last year in order to stay in business.

Xinjiang Kingtec issued a bond worth 550 million yuan in 2013 with a 6.1-percent coupon that was originally due to mature in 2020. However, the company said that due to “serious uncertainties” about the future operations of the company, it would move the bond’s maturity date forward by two years.

“As the firm is already facing a bankruptcy crisis, it is unable to pay the whole of the interest on the principal of this bond,” the firm said in a statement submitted to the website of the China Central Depository and Clearing Co. (CCDC), China’s primary bond clearing house.

CCDC quoted a yield of 37.91 percent for the bond on Friday.

Domestic ratings agency Pengyuan Credit Rating downgraded its ratings on the bond and on Xinjiang Kingtec to B- from BBB+ in December.

Xinjiang Kingtec added that it is working to find a third party source of funds to assist in the repayment of “a certain proportion” of bond principal. It said it would aim to pay back 60 percent of its debt to institutional investors, and fully repay individual investors.

Kingtec Steel traces its history back to 1969, employs more than 2,000 people, and has a steel production capacity of around 2 million tonnes per annum.

The company has accumulated debts of 3.017 billion yuan, higher than its total assets of 2.432 billion yuan, it said.

Earlier this year, the firm was also fined more than 2 million yuan by the local environmental bureau for failing to comply with technical and pollution control standards.